Bankers are motivated to move into these other fields because the work is more intellectually engaging, the pay is higher, and the hours are slightly better.

The Most Common, Flawed Thought Process Behind Exit Opportunities

For many years, the thought process behind exit opportunities was:

“I’ll suffer through investment banking for 2-3 years and work terrible hours, but that suffering will allow me to move into a more interesting and lucrative role with better hours in the future.”

In the original version of this article, I pointed out the flaws in this reasoning:

The Work is Not THAT Much Different: Yes, there’s less grunt work, and you get to use your critical thinking skills since you’re acting as an investor… but if you think financial statement analysis is boring, you’re going to hate these jobs as well.

The Hours Aren’t Necessarily That Much Better: For example, you’ll still be working long hours that prevent you from having much of a life if you’re at a “mega-fund” (one of the largest private equity funds or hedge funds). The hours are better at smaller firms, but you’re still looking at 60-70-hour workweeks in many cases.

If you’re working at a bulge bracket or elite boutique, headhunters will start contacting you a few months into the job, even if you’ve had no real deal experience yet.

So you might not have much to talk about in interviews, at least if you focus on the mega-funds that start ridiculously early.

It also means that you may not have much time to decide on your best option – wait too long, and many PE and HF opportunities will be gone.

You can still move into other industries, but you’ll have to focus on smaller funds or areas like corporate finance without hyper-accelerated recruiting.

3) The Lifestyle Improvement Might Not Be So Great Anymore

Banks, realizing that investment banking jobs were no longer desirable next to jobs at Facebook and Google, have been attempting to improve Analysts’ lives for several years now.

They started offering “protected weekends,” where Analysts get guaranteed time off from Friday night into Sunday morning for one weekend per month, and some banks have gone beyond that and attempted to limit office time on all weekends.

Banks have also been trying to keep junior bankers around longer by promoting them more quickly and paying bonuses in December/January.

You’ll still be working all day and night on weekdays, but these changes have made 110-hour workweeks a bit less common.

So the lifestyle improvement in moving from IB to exit opportunities might not be as dramatic anymore.

4) There’s a Greater Variety of Exit Opportunities

Anecdotally, it seems like more bankers are pursuing non-PE/HF exit opportunities now compared with 5-10 years ago.

The tech startup is the biggest and most obvious new area, but there has also been more interest in corporate finance and areas like consulting and equity research.

An optimistic interpretation of this trend might be: “Aha! Finally, people realize that there are other options outside of private equity and hedge funds.”

A more cynical interpretation might be: “PE and HF roles have become so ridiculously competitive that bankers have to look at other options.”

5)Private Equity and Hedge Fund Compensation is Down and Probably Won’t Recover to Its Old Levels

For reference, pre-2008-financial-crisis pay was insane.

IB Analysts who left banking and went to mega-funds would often earn $500K in all-in compensation, and it could be even higher at the top hedge funds.

Pay dropped immediately after the financial crisis, and it hasn’t recovered since then.

Over the past five years (2011 – 2016), the average “all-in” PE compensation across all levels has been around $250K – $300K, with HF compensation around $300K – $350K (Source:The Job Search Digest compensation reports).

But those are averages across all levels: If you enter after a few years in banking, you’ll be earning on the lower end of that range until you move up the ladder.

Average Analyst and Senior Analyst compensation at hedge funds has been around $200K – $250K over the past several years.

Yes, those are big numbers, but they’re not that much of an increase over investment banking compensation: Associates currently earn between $200K and $400K all-in.

You do get a bump if you go from being a 2nd or 3rd Year Analyst at a bank to a buy-side role, but you won’t double your compensation.

6) You’re Not an Early Mover Anymore – Everyone Knows About These Industries

Finally, all these industries are more mature and developed now.

If you had joined a hedge fund in 1996, you would have been an early mover.

But in 2016, you’re another one of the tens of thousands who wants to move in.

“I’ll test various fields with internships in university, or with pre-MBA internships or school-year internships during a Master’s program, then go into investment banking, and then think about returning to one of those fields.”

What Do You Need for the Best Exit Opportunities?

To pursue the “best” exit opportunities – the most selective or prestigious ones – you need:

A Bulge-Bracket or Elite-Boutique Bank – You have the best chance of winning mega-fund offers if you’re at one of these. The specific bank matters less than the type of bank you’re at.

So if you have a choice between two bulge brackets, don’t choose based on which one is “more prestigious”: Pick based on the team and culture you prefer.

If you’re at a middle-market or smaller firm, you can still win exit opportunities, but you’ll have to do a lot more work on your own and aim for smaller companies.

The Right Geography – There are far more exit opportunities in New York, London, and Hong Kong than in other cities in North America, Europe, and Asia. And it’s tough to make an East Coast to West Coast move, or vice versa, if you’re in the U.S.

A Top Undergraduate Institution and GPA – Yes, these still matter, especially since recruiting starts so ridiculously early.

The Right Industry Background – It’s tough to move from something specialized, such as FIG investment banking, into a more general team, such as a healthcare or consumer/retail-focused private equity fund.

I won’t do that, but I will briefly describe the trade-offs of the most common ones:

Private Equity

Private equity is best if you enjoy working on deals, but you want to think about them more critically and work with companies over the long term – years instead of months.

You have a lot of options if you go into PE and decide you don’t like it: You could go to business school, join a portfolio company in a finance role, or even move to some other exit opportunity.

You get more of a “generalist” skill set because you’re not doing just one thing over and over: It’s a mix of financial analysis, negotiations, leadership/team coordination, and sales skills (if you do sourcing or fundraising).

Compensation is another positive, but to make serious money – in the 8-figure range or beyond – you’ll have to advance to a very senior level or start your own firm.

Besides the fact that it’s so difficult to get into private equity, another drawback is that it’s very tough to get promoted up to the top.

Partners at these firms have such cushy positions that hardly anyone leaves voluntarily.

Hedge Funds & Asset Management

Hedge funds are so different from private equity that it’s almost deceptive to group them together.

The day-to-day work is more stressful since you monitor the markets constantly, but you’re less likely to have a disaster on a pending deal that kills your weekend.

You should consider these roles only if you have a track record, an undying passion for investing, and specific ideas; you don’t necessarily need those in PE since you can talk about your deal experience, but it’s essential here.

The main downside to these roles is that you develop a very specialized skill set, which makes it difficult to move to different funds or different industries.

It’s also tougher to get into top MBA programs because it’s difficult to explain a complicated investment thesis to admissions committees.

By contrast, it’s easier to explain a deal or a difficult client situation, so you have an advantage coming from IB/PE roles.

Corporate finance roles are best if you want a better work-life balance, you don’t care about a slower progression up the ladder, and you want to use your skills at a real company that makes something.

Corporate Development

We group corporate finance and corporate development together on this site, but the roles are quite different.

Mid-six-figure to seven-figure pay at the mid-to-senior levels, and if you’re at an elite boutique, that pay will be in cash rather than stock or deferred compensation.

The risk-adjusted compensation can’t be beat. Yes, you can earn far more money in buy-side roles, but there’s also far more risk from your fund blowing up or shutting down. And pay at normal companies doesn’t come close unless you reach an executive position at a huge firm.

There is a clear progression up the ladder. This progression is in sharp contrast to many other roles where you keep the same title for years.

To Exit or Not to Exit: Is That the Question?

No, that’s not the question – or at least, that’s not the complete question.

Rather than thinking about “exit opportunities,” you should think about your long-term career progression.

Test out different industries with your internships, see what you like and don’t like, and then see what you think of your full-time role in banking.

If you want to leave and you have your heart set on a mega-fund, move quickly!

If not, take your time and see what fits you best.

With enough time and treatment, you might just lose your obsession with exits.

About the Author

Brian DeChesare is the Founder of Mergers & Inquisitions and Breaking Into Wall Street. In his spare time, he enjoys memorizing obscure Excel functions, editing resumes, obsessing over TV shows, traveling like a drug dealer, and defeating Sauron.

Comments

Thank you for the article. I am currently a first year analyst in banking and am thinking about what I would like to do after banking. I pursued a Finance/Accounting degree in college but have always been interested in engineering (was involved in a few hackathons in college). I enjoy the work at my firm, but I have thought about exploring software engineering focused opportunities after (start up for example). What are your thoughts on doing something like a Stanford dual MBA/CS degree? Do you know of anyone who went back to college to receive a full engineering degree so they could work in that field? Thank you.

i work in software and found your question interesting. from my view, i’ve never seen a non-engineering undergrad move to MBA/CS to work in engineering, but i have seen professionals with non-engineering degrees acquire engineering skills through self-study.

in software — perhaps unlike in banking — it’s less critical to have a CS degree from a target school. if you’re really interested in engineering, i would start learning on your own with the help of sites like coursera and udemy…not sure it’s necessary to go back to school. this would help you understand whether you truly love engineering or might prefer a different role such as product management or sales (i have seen many ex-bankers move into PM, fwiw).

Not offhand, no, but it’s a decent option. As Evan said below/above, you don’t need a specific background to do engineering as long as you’re good at it… prestige matters far less, and even high-school dropouts can be fantastic programmers.

Hi Brian – Nice article! M&I always provides great insight and logical reasoning. You mentioned that when choosing between bulge-bracket banks, “prestige” shouldn’t be a concern since “the specific bank matters less than the type of bank you’re at.” I am wondering if the case still holds for the nine bulge-bracket banks, especially for UBS and DB. Thanks.

Did you see the part about how this version of the article was written recently, i.e. a few weeks ago in 2016?

The reason that “better” banks such as GS/MS/JPM tend to have better placements into PE is that smarter and more polished Analysts tend to go those firms. This is especially the case now that the overall quality of IB candidates has dropped significantly (I’m about to go crazy with the sheer stupidity of the questions we get these days).

So… are you polished enough to receive an offer at one of the top 3 banks? If so, but you happen to like the team at UBS or DB better, you can go to UBS or DB and recruit for buy-side roles, and you’ll still do fine as long as you’re at the same level as the best analysts at the better banks.

Brian – very interesting article. I have a question. I am currently in an IB role and I was wondering if you think working at RE private equity firm is possible or if you ever see anyone moving from IB to Real Estate at all?

It’s possible, but normally for real estate they want to see more of an industry background. So your chances would be better if you worked in real estate investment banking or even something like infrastructure or project finance. Most of the RE PE stories I’ve seen have been people moving in from one of those or from commercial real estate brokerage firms.

I am a 1st-year analyst at a good boutique. I am still undecided about what I want to do so could I stay for 3 years in banking and then jump to the buy-side? Would I be at a disadvantage if I recruit a year late?

I don’t think you would be at any disadvantage if you recruit a year later. It’s just that you’re taking a bit of a risk because the market may worsen or there may be fewer opportunities by then. But plenty of analysts do actually stay for a year before they begin to recruit for buy-side opportunities, often because they don’t have enough deal experience a few months into the job.

Some firms would view it negatively, but it depends on where you’re moving to. If you get a PE offer that starts after only 1 year, sure, take it… but most of the time, they don’t, so your exit opportunities are more limited at that point.

Go to another bank, maybe go into DCM or LevFin, or maybe trade municipal bonds or do something else related to municipal bonds at a hedge fund. It would be tough to move into a standard IB/PE role from public finance.

According to the article above, in PE the pay is better, the work is less grunty, and the hours are at least slightly less terrible. What is the upside to staying in IB? What prevents every IB associate from quitting and going to PE?

M&I, AWESOME article !!!
Honestly speaking, I never understood and still don’t get when someone says hours are terrible in finance. People in finance love money, thus they all are in finance (Talking about IB, PE, and HF). They sacrifice their time, relationships, and so on and so forth for better life later on.
You work more, make more and have better life; I think fair enough. At the end of the day, everyone works equally long hours. But, the difference – investment bankers work those hours in their 20s and 30s while others work entire life.
Personally, I prefer working while young; probably, it was the main reason I study finance in college and want a career in IB.

Hi Nicole. I am studying Petroleum engineering and Finance in UNSW, which is in the top 10 finance schools in the world. I want to work in a hedge fund and was wondering what is the best way to break into it? Also, should I eventually get an MBA after my work experience?

Thankyou very much for your help. I was also wondering, how are the hedge fund industries in Australia (Sydney) like? Also, are there any specific bachelor degree/s could I do inorder to improve my chances to get into hedge funds in Australia (I am still in first year and hence capable of easily transferring to other courses). I understand form your other articles that there is no specific path but surely there must be few degrees that would be helpful in the future.Finally, how can i get some work experience in these and related financial industries despite being a freshman. I would like to thank you again for all your help.

I’m not 100% sure with industry in Australia, but I think talking to fund managers through LinkedIn and industry events will help you. It also helps if you’re from a target school. I don’t think there are specific degrees though Finance/Accounting maybe preferable.

Hi Nicole, I’m an engineer by degree. With effort I have changed my career from IT to Finance. Currently I’m working for a leading KPO in India.

If I apply for a top B-School chances of being selected are slim as I neither have exceptional achievements nor grades. My plus points will be 3 years of work ex and GMAT score (assuming I do well in GMAT)

On the other hand boutique banks or PE firms are not very interested in my KPO experience. They are more looking for deal experience which I do not have. I do not have any degree in finance, this might be a negative point too.

Taking all the above points into consideration if I have to get into a decent IB or PE firm where should I invest my next 1 year time. Should I continue to apply for boutique IB or PE firms or should start preparing for GMAT and try getting into good B-schools.

Good read. I’m a rising undergrad JR majoring in Finance and Math in Wharton. I want to try to get a PE internship as opposed to an IBanking internship next summer as a junior. Will that be detrimental to me if I ultimately decide that I want to get into IB after graduating?

Since I still am not 100% sure of what I want to do, my rationale for this is that it would be easier for someone with an internship experience in PE to break into IB, than someone with an internship experience in IB to break into PE. Is this wrong?

Basically, I want to set myself up so that regardless of what I end up in after undergrad business school, I will have the most opportunities in front of me, be that climbing the ladder or exiting (I know it sounds selfish haha). Thanks!

No it is not detrimental at all. You just need to explain yourself well. I think its a good idea to try a PE internship, though it can be challenging to come across such opportunities. If a PE internship comes by I’d take it. Otherwise, I’d also leave doors open for IB roles.

I am just beginning my role as an analyst at a BB in Asia. I was wondering if PE/Hedge Fund recruiting worked similarly here as in the US? I understand that in the US, analysts get contacted for the buy-side roles as early as few months into their jobs and some even have buy-side offers by end of their first year at the BB. What is the scene here in Asia – Singapore, Hong Kong etc? Do analysts have similar opportunities (of course, not as prevalent as in the US) to make the shift early on?

I am a post-MBA first year associate at a bulge bracket firm in New York. I was a summer associate with another bulge bracket during my MBA. Prior to my MBA I worked with a bulge bracket investment bank in a non-finance role for 4 years. I have completed my CFA as well.

I have had relatively decent deal experience. I now want to try to get an associate position at a private equity firm. I would like to know if candidates like me land private equity jobs and how quickly is the window closing on me.

Great article. How difficult is it for a post-MBA banking associate (2-3 years of experience at associate level) to get an investment analyst job at a hedge fund (Long Short, or distressed)? (assuming my odds of getting into a hedge fund right after MBA is slim)

I am trying to figure the best path of breaking into hedge funds after MBA. It seems like banking analysts make the jump regularly, but it is much less common for associates.

Is that true? Should I go to equity research to have much better chances?